Spillovers among sovereign CDS, stock and commodity markets: A correlation network perspective

Xiaolei Sun, Jun Wang, Yanzhen Yao, Jingyu Li and Jianping Li

International Review of Financial Analysis, 2020, vol. 68, issue C

Abstract: In the wake of the globalization of financial markets, studying spillovers among different asset markets, especially spillovers that include sovereign CDS markets, is of vital importance. This paper attempts to build a spillover network to investigate the complex interactions within the system of sovereign CDS, stock and commodity markets by adopting the spillover index based on forecast error variance (FEV) decomposition. The results reveal that emerging countries have larger average spillovers than developed countries with regard to sovereign CDS-to-stock returns spillovers, while the developed countries contribute more average spillovers than the emerging countries in the opposite direction. Moreover, the sovereign CDS market and the commodity market still demonstrate a relatively important role during certain periods although stock markets always occupy the dominant position during every phase. Our findings provide new insights into spillovers among the major global asset markets using a network perspective, which is valuable for regulation of financial markets, asset allocation and portfolio risk management.

Keywords: Sovereign CDS; Spillover; Network; FEV decomposition (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:68:y:2020:i:c:s1057521918304599

DOI: 10.1016/j.irfa.2018.10.008

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